Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• Coal Block auctions- hurdles to overcome: The Ministry of Coal (MoC) has
started the process of moving towards auctioning of coal blocks, from the
current policy of allocating blocks. The MoC has invited stakeholder comments
on 4 possible options which differ in terms of payment mechanism and
weightage given to various attributes of the bid/bidder. In our view, there are
still many issues to be resolved including- a) clarity on GO-NO area from the
MOEF (which would indicate which coal blocks can be put up for bids); b) can
the approval process be quickened to allow for faster production; c) potential
issues between previous allocates and new bidders (as coal blocks under
allocation currently do not have to pay any large upfront amount). In our view,
the auction process is unlikely to start before year end (March-2012) at the
earliest.
• Coal block allocation process- key issues why it has not succeeded: We
estimate of the 215 coal blocks allocated only 26 have started production (till
June-10) with average time taken to attain production being 6.5years. Delays in
securing approvals, land acquisition, and the multi party allocations have
been the key reasons behind the delay. Actual production from allocated coal
blocks stood at 35MT in FY10 as per MoC.
• No visibility on commercial coal production: While the Government has
introduced legislation to allow commercial coal mining, it has been stuck in
Parliament for the last 10 years (currently only captive mining allowed). We
believe to incentivize private participation in coal mining, allowing
commercial coal is key, although it looks unlikely in the near term.
• So are we going to see large bids in auctions? Unlikely so- While captive coal
is a key advantage across user industries, the current timelines for bringing a
coal block to production makes any large bid (similar to what buyers have
paid for acquiring assets in Indonesia and Australia difficult) unlikely, in
our view. Also, given that commercial coal sales are not yet allowed,
participants in auctions would likely be limited to companies with end use only.
• Auction process not likely a revenue generating exercise: Given that a large
part of the payments (by bid winner) is over a 5 year period, means this is not
likely a revenue generating exercise but more to kick start coal production in
captive coal blocks. Coal India’s (COAL) production/off take targets are likely
to fall short of the power sector requirement. In our view, the success or
failure of coal block auctions could likely have implications for other
resources, particularly iron ore.
• Implications for Coal India: Coal supply from captive coal blocks is unlikely
to materially increase from current levels, and hence coal deficit situation in our
view is likely to further deteriorate from here. We see upside risks to our
thermal coal import estimates of 72/90MT for FY12/13E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• Coal Block auctions- hurdles to overcome: The Ministry of Coal (MoC) has
started the process of moving towards auctioning of coal blocks, from the
current policy of allocating blocks. The MoC has invited stakeholder comments
on 4 possible options which differ in terms of payment mechanism and
weightage given to various attributes of the bid/bidder. In our view, there are
still many issues to be resolved including- a) clarity on GO-NO area from the
MOEF (which would indicate which coal blocks can be put up for bids); b) can
the approval process be quickened to allow for faster production; c) potential
issues between previous allocates and new bidders (as coal blocks under
allocation currently do not have to pay any large upfront amount). In our view,
the auction process is unlikely to start before year end (March-2012) at the
earliest.
• Coal block allocation process- key issues why it has not succeeded: We
estimate of the 215 coal blocks allocated only 26 have started production (till
June-10) with average time taken to attain production being 6.5years. Delays in
securing approvals, land acquisition, and the multi party allocations have
been the key reasons behind the delay. Actual production from allocated coal
blocks stood at 35MT in FY10 as per MoC.
• No visibility on commercial coal production: While the Government has
introduced legislation to allow commercial coal mining, it has been stuck in
Parliament for the last 10 years (currently only captive mining allowed). We
believe to incentivize private participation in coal mining, allowing
commercial coal is key, although it looks unlikely in the near term.
• So are we going to see large bids in auctions? Unlikely so- While captive coal
is a key advantage across user industries, the current timelines for bringing a
coal block to production makes any large bid (similar to what buyers have
paid for acquiring assets in Indonesia and Australia difficult) unlikely, in
our view. Also, given that commercial coal sales are not yet allowed,
participants in auctions would likely be limited to companies with end use only.
• Auction process not likely a revenue generating exercise: Given that a large
part of the payments (by bid winner) is over a 5 year period, means this is not
likely a revenue generating exercise but more to kick start coal production in
captive coal blocks. Coal India’s (COAL) production/off take targets are likely
to fall short of the power sector requirement. In our view, the success or
failure of coal block auctions could likely have implications for other
resources, particularly iron ore.
• Implications for Coal India: Coal supply from captive coal blocks is unlikely
to materially increase from current levels, and hence coal deficit situation in our
view is likely to further deteriorate from here. We see upside risks to our
thermal coal import estimates of 72/90MT for FY12/13E.
No comments:
Post a Comment